What Is Layer 1 in Blockchain?
Introduction
The concepts of Layer 1 and Layer 2 can help us better understand the architecture of different blockchains, projects, and development tools. If you’ve ever been curious about the relationship between Polygon and Ethereum, or Polkadot and its parachains, grasping these blockchain layers will clarify those questions.
What is Layer 1?
Layer 1 networks are synonymous with the underlying blockchains. Examples include Binance Smart Chain (BNB), Ethereum (ETH), Bitcoin (BTC), and Solana, all of which fall under the Layer 1 protocol category. They are referred to as Layer 1 because they serve as the primary networks within their respective ecosystems. In contrast, off-chain solutions and Layer 2 solutions are built on top of the main chain.
In other words, Layer 1 protocols can directly process and complete transactions on their own blockchain and come equipped with native tokens used for paying transaction fees.
Layer 1 Scalability
Layer 1 networks universally face scalability challenges. As transaction demand continues to grow, Bitcoin and other major blockchains are striving to enhance transaction processing speeds. The Proof of Work (PoW) consensus mechanism used by Bitcoin requires substantial computational resources. While PoW balances decentralization and security, network performance often declines during peak transaction periods, resulting in longer confirmation times and increased fees.
For years, blockchain developers have been exploring scalability solutions, but a consensus has yet to be reached. Options for Layer 1 scalability include:
Increasing the block size to allow more transactions per block.
Changing the consensus mechanism, as is planned with the upcoming Ethereum 2.0.
Implementing sharding to split the database.
Improving a Layer 1 network often requires significant effort. In many cases, not all network users agree to such changes, which can lead to community splits and even hard forks. For example, the split of Bitcoin Cash from Bitcoin in 2017 was a result of a hard fork.
Segregated Witness (SegWit)
Bitcoin's Segregated Witness (SegWit) is an example of a Layer 1 scalability solution. SegWit increases Bitcoin's throughput by altering the organization of block data, specifically by removing digital signatures from transaction data. This change frees up block space, allowing each block to accommodate more transactions without compromising the network's security. SegWit was implemented via a backward-compatible soft fork, meaning that Bitcoin nodes that have not yet been updated to include SegWit can still process transactions.
What is Layer 1 Sharding?
Sharding is a common Layer 1 scalability solution aimed at increasing transaction throughput. It is a database partitioning technique applied to the distributed ledger of a blockchain. The network and its nodes are divided into multiple shards, distributing the workload and enhancing transaction speed. Each shard handles a portion of the transactions across the entire network, with its own nodes and independent blocks.
After sharding, nodes no longer need to maintain a complete copy of the blockchain. Each node records its completed work on the main chain and shares local data in real time, including address balances and other important parameters.
Comparison of Layer 1 and Layer 2
Layer 1 networks face some insurmountable bottlenecks. Due to technological limitations, it is difficult or nearly impossible for the main blockchain to implement certain changes. For example, Ethereum's transition to a Proof of Stake (PoS) system has taken several years to complete.
Due to scalability issues, Layer 1 is not always suitable for all use cases. The Bitcoin network has longer transaction times, making it impractical to run blockchain games on it. However, game developers may still wish to leverage the security and decentralization features of Layer 1. In such cases, the optimal solution is to build a Layer 2 solution on that network.
Lightning Network
Layer 2 solutions are built on top of Layer 1 and rely on Layer 1 to complete transactions. The Lightning Network is a well-known example. During peak traffic on the Bitcoin network, completing a transaction can take hours. The Lightning Network allows users to make quick payments using Bitcoin off the main chain, subsequently submitting the balance to the main chain. This way, all transactions can be aggregated into a final record, saving time and resources.
Examples of Layer 1 Blockchains
Having understood the concept of Layer 1, let’s look at some specific examples. There is a wide variety of Layer 1 blockchains, each with its own unique features. Many blockchains support distinct use cases and are not all mainstream networks like Bitcoin or Ethereum. To address the blockchain trilemma—balancing security, decentralization, and scalability—each network has its own unique solutions.
- Elrond
Elrond is a Layer 1 network established in 2018. This network utilizes sharding technology to enhance performance and scalability, capable of processing over 100,000 transactions per second. Its two main features are Secure Proof of Stake (SPoS) consensus protocol and adaptive state sharding. Adaptive state sharding dynamically adjusts the number of shards based on the number of network users, thereby partitioning the overall state and transactions of the network. Validators are assigned to different shards, reducing the risk of a shard being maliciously taken over.
Elrond’s native token, EGLD, is used to pay transaction fees, deploy decentralized applications (DApps), and reward users participating in network validation. Additionally, the Elrond network has received a negative carbon emission certification, offsetting more carbon than the emissions generated by its PoS mechanism.
- Harmony
Harmony is another Layer 1 network that employs Effective Proof of Stake (EPoS) and sharding technology. The mainnet consists of four shards that can simultaneously create and validate new blocks. Each shard operates at its own speed, resulting in varying block heights.
Currently, Harmony is attracting developers and users through its "cross-chain finance" strategy. Its trustless cross-chain bridge connects Ethereum and Bitcoin, allowing users to exchange tokens without incurring common custodial risks, which is a key aspect of Harmony's strategy. Harmony relies on decentralized autonomous organizations (DAOs) and zero-knowledge proofs to advance the core vision of Web3.
Multi-chain and cross-chain approaches seem to be the future direction of decentralized finance (DeFi), making Harmony's bridging services more appealing to users. It focuses on areas such as non-fungible token infrastructure, DAO tools, and inter-protocol bridging.
Harmony's native token, ONE, is used to pay network transaction fees, and users can participate in Harmony's consensus mechanism and governance by staking tokens. Successful validators receive block rewards and transaction fees.
- Celo
Celo is a Layer 1 network that forked from Go Ethereum in 2017. After the fork, the network underwent several significant improvements, including the implementation of Proof of Stake (PoS) and the introduction of a unique addressing system. Celo's Web3 ecosystem encompasses decentralized finance, non-fungible tokens, and payment solutions, having confirmed over 100 million transactions to date. On Celo, users can use their phone numbers or email addresses as public keys, and running the blockchain does not require special hardware; ordinary computers can easily manage it.
Celo's main token, CELO, is a standard utility token used for securing the network, facilitating transactions, and rewarding users. Additionally, the network employs cUSD, cEUR, and cREAL as stablecoins, which are user-generated and maintain a peg similar to MakerDAO's DAI. Transactions using Celo stablecoins can be settled using any other Celo asset. Celo aims to lower the barriers to cryptocurrency usage through its convenient addressing system and stablecoins, thereby promoting wider adoption.
- THORChain
THORChain is a decentralized exchange (DEX) built on a permissionless Layer 1 network. The network is based on the Cosmos SDK and utilizes the Tendermint consensus mechanism to validate transactions. THORChain's primary goal is to achieve decentralized cross-chain liquidity, eliminating the need for asset pegging or wrapping, allowing cross-chain investors to avoid related risks.
In operation, THORChain acts as the administrator of liquidity pools, creating decentralized liquidity by overseeing fund deposits and withdrawals, thus removing the need for centralized intermediaries. RUNE is THORChain's native token, used to pay transaction fees, participate in governance, validate transactions, and secure the network.
THORChain's automated market maker (AMM) model uses RUNE as the base currency, allowing users to swap any other supported assets with RUNE. In this regard, THORChain operates similarly to cross-chain Uniswap, with RUNE serving as the settlement and security asset for the liquidity pools.
- Kava
Kava is a Layer 1 blockchain that combines the speed and interoperability of Cosmos with Ethereum's developer support ecosystem. Kava employs a "co-chain" architecture that provides different chains to support both EVM and Cosmos SDK development environments. Thanks to the IBC support on Cosmos co-chains, decentralized applications deployed by developers can seamlessly operate across the ecosystems of Cosmos and Ethereum.
Kava uses the Tendermint PoS consensus mechanism, offering robust scalability. The Kava network is supported by KavaDAO, where the publicly available on-chain developer incentive mechanism rewards the top 100 co-chain projects based on their usage.
Kava supports two types of tokens: the native utility token and governance token, KAVA, along with a stablecoin pegged to the US dollar, USDX. KAVA is used to pay transaction fees, and validators can participate in network consensus by staking their tokens. Users can delegate their staked KAVA tokens to validators to earn a portion of the issued KAVA. Both stakers and validators can vote on governance proposals to adjust network parameters.
- IoTeX
Founded in 2017, IoTeX is a Layer 1 network focused on integrating blockchain with the Internet of Things (IoT). IoTeX enables users to control data generated by their devices, allowing machines to support decentralized applications, assets, and services. Users' personal information holds intrinsic value, and managing it through blockchain ensures security.
IoTeX combines software and hardware, providing a novel solution that allows users to maintain privacy and control over their data without sacrificing user experience. Users can earn digital assets through a system called MachineFi, utilizing data from the real world.
IoTeX has launched two notable hardware products: Ucam and Pebble Tracker. Ucam is an advanced home security camera that allows users to monitor their home at any time while ensuring data privacy. Pebble Tracker is a smart GPS device that supports 4G, capable of tracking GPS data and monitoring environmental data such as temperature, humidity, and air quality in real time.
In terms of blockchain architecture, IoTeX hosts several Layer 2 protocols based on its platform. The blockchain provides tools for creating custom networks that utilize IoTeX for final confirmation, and these chains can also interact and share information through IoTeX. Developers can easily create new sub-chains to meet specific IoT device needs. IoTeX's token, IOTX, is used for paying transaction fees, staking, governance, and network validation.
Conclusion
Currently, the blockchain ecosystem comprises multiple Layer 1 networks and Layer 2 protocols. While it is easy to confuse them, mastering the foundational concepts makes it easier to understand the overall architecture. When researching new blockchain projects, especially those focused on network interoperability and cross-chain solutions, grasping these foundational concepts is crucial.